Asset‐pricing Tests under Alternative Distributions

ABSTRACT

Given the normality assumption, we reject the mean‐variance efficiency of the Center for Research in Security Prices value‐weighted
stock index for three of the six consecutive ten‐year subperiods from 1926 to 1986. However, the normality assumption is strongly
rejected by the data. Under plausible alternative distributional assumptions of the elliptical class, the efficiency can no
longer be rejected. When the normality assumption is violated but the ellipticity assumption is maintained, many tests tend
to be biased toward overrejection and both the accuracy of estimated beta and R2 are usually overstated.